Special Needs and Supplemental Needs Trusts

Special needs trusts, also known as supplemental needs trusts, are an essential tool in planning for the future of your child with special needs.

As with any trust, a trustee will manage funds for a beneficiary. A special needs trust benefits families and children with disabilities by protecting assets and retaining public benefits, because the funds they hold are not considered income for the purpose of eligibility for benefits. Therefore, when a child with special needs turns 18, he or she may continue to receive certain need-based benefits like Medicaid and Supplemental Security Income (SSI), while funds from the trust can be used for the child’s supplemental needs. Special needs trusts allow families and trustees to hold funds for the benefit of individuals who cannot manage money on their own.

A beneficiary may only use funds from special needs trusts to pay for certain supplemental needs, not for basic needs such as housing or groceries. Trust funds used to pay for such necessities may be considered income, affecting SSI eligibility. Specifically, funds from special needs trusts cannot be used to pay for:

It’s the same as a special needs trust. Some lawyers simply prefer to use the term “supplemental benefits” or “supplemental needs” instead. The terms are interchangeable. They describe the trust’s purpose and are not legally different.

Sometimes a recipient of public benefits receives assets that prevent continued benefits eligibility. In this case, it may be possible – and advisable – to place assets into a special needs trust to regain or continue government benefits eligibility.

Anyone. A third party special needs trust can be established by one person for the benefit of another. The person establishing the trust – called the settlor, grantor or trustor – chooses to make some of his or her assets available for the benefit of the beneficiary with a disability. Third party special needs trusts are often established by parents for their children with disabilities.

Not everyone with disabilities who receives a large tort settlement needs a special needs trust. A trust is usually necessary only if the person is receiving Medicaid , SSI or other means-tested government benefits. Small settlements may not warrant the establishment and administration of a trust. Other ways can be found to shelter the settlement funds. Even if the person is not currently receiving benefits, a trust must be considered if there is a possibility that the person may receive means-tested government benefits in the future.

A Special Needs Trust holds assets for the benefit of an individual who is receiving or may receive public benefits such as Supplemental Security Income (SSI) and Medicaid. If properly drafted, having assets in a special needs trust does not disturb the person’s eligibility for public benefits.

Typically, the trust is funded or receives money only upon your death. Grandparents or other relatives might leave something to this trust, as well. You might also decide to gift or transfer money into the trust while you are living. Doing so raises a number of tax issues about which you must obtain appropriate advice.

Generally speaking, money in the trust can be used to pay for items and services that are not provided to the beneficiary by the public benefits system. For example, money in the trust can buy the beneficiary a television or pay someone to be the individual’s companion while at home or while on a trip.

It is important to have funds segregated and irrevocably devoted to the child with a disability. The brother or sister, however well meaning, could face a divorce or be sued or die before his sibling with a disability. In any of their circumstances, the money could be lost and become unavailable.

The trustee should be someone who is responsible and who will be devoted to the beneficiary. This is often a relative, although it can be a professional fiduciary or professional trustee, if no family member is available. This is a complicated question that you must discuss with your attorney.

If you create this trust for the benefit of your child, money remaining in the trust goes to individuals you name in the Special Needs Trust. It is up to you. Alternatively, remaining assets can go to your favorite charity.

Many supplemental needs can be paid for with trust funds. Trust distributions can be used for medical expenses that are not covered by Medicaid, such as wheelchairs, mechanical beds, accessible vans and special therapies. Funds can also be used for recreational and cultural experiences that would enrich your child’s life. Sometimes, however, it may be a difficult call to decide what constitutes a supplemental need vs. a necessity and you will need the advice of a special needs planning attorney.

Keep in mind that there are three main types of special needs trusts: self-settled trusts, which use funds owned by the beneficiary, such as an inheritance or legal settlement; pooled trusts, which are managed by nonprofit organizations for many beneficiaries; and third-party trusts, which may be established by the parents or other loved ones of a person with special needs.

Establishing special needs trusts is a complex job , and there are important considerations to keep in mind regarding public benefits, tax implications and the impact of the trust on a family’s overall financial and estate plan. Our special needs planning attorneys will take the time to understand your needs, and we will provide you with comprehensive advice throughout the process.

This article does not constitute legal advice and should not be relied upon. If you need legal advice concerning this or any other topic please contact our offices to schedule a consultation with one of our attorneys at 914-684-2100 or 212-490-2020.